Legislature(2003 - 2004)
04/08/2003 09:02 AM Senate FIN
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SENATE CS FOR CS FOR HOUSE BILL NO. 9(L&C)
"An Act relating to the registration of individuals who
perform home inspections; relating to regulation of
contractors; relating to registration fees for specialty
contractors, home inspectors, and associate home inspectors;
relating to home inspection requirements for residential loans
purchased or approved by the Alaska Housing Finance
Corporation; relating to civil actions by and against home
inspectors and to civil actions arising from residential unit
inspections; repealing a law that limits liability for damages
based on a duty to inspect a residential unit to damages
caused by gross negligence or intentional misconduct; and
providing for an effective date."
This was the first hearing for this bill in the Senate Finance
Committee.
Co-Chair Wilken explained this bill "creates a mandatory
registration of home inspectors. Under this legislation the
Division of Occupational Licensing administers the program without
a board and incorporates the registration within the construction
contractor registration program."
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REPRESENTATIVE NORM ROKEBERG, sponsor, noted this could be the 28
public hearing on this issue in the past five years. He informed
that this bill provides that home inspectors and associate home
inspectors would be regulated by the Division and creates the
framework for a regulatory process for a group of professionals
that currently do operate under any regulation. He reported that
the real estate industry encompasses approximately 25 percent of
the State domestic product, commenting, "It's an absolutely huge
industry." He remarked that every aspect of a real estate
transaction is currently regulated with the exception of home
inspections.
Representative Rokeberg stated that the home inspection industry is
the result of lending institution requirements imposed
approximately ten to twenty years ago to ensure that the "housing
stock product in this country was properly constructed and built."
He noted this applies to political subdivisions not governed by
building inspections, which encompasses most of Alaska.
Representative Rokeberg told the Committee this legislation
provides a "regulatory scheme" and removes some exemptions and
immunities from State statutes relating to home inspections
conducted for the Alaska Housing Finance Corporation (AHFC). He
commented this issue has been the "number one controversial
sticking point."
Representative Rokeberg added that the bill imposes statutory
limitations relating to the time in which a lawsuit could be
brought and "limits the length of report to 180 days".
Representative Rokeberg expressed satisfaction that this
legislation "avoids setting up a board or commission," explaining
that with approximately 100 practitioners in the State, biannual
license fees would need to be $1,500. Instead, he stated that the
inspectors would be included with specialty contractors, at the
recommendation of the Alaska Homebuilder's Association, which would
lower the biannual license fees to approximately $246. He
emphasized the higher license fees could impact the price of home
inspections and have an impact "on the commerce of the State of
Alaska." He stressed the intent to encourage homebuyers to obtain
home inspections for both existing and new homes.
Representative Rokeberg spoke to a proposed amendment, which he
explains makes a technical correction to reflect the name change of
the International Code Council, formally the International
Conference of Building Officials [This matter is addressed as
Amendment #2 later in the hearing.]
Senator Bunde clarified the cost of the business license would pay
the expenses to operate the program; therefore this would be a
revenue neutral program.
Representative Rokeberg affirmed and noted the statutes relating to
occupational licensing require that all occupational licensing
programs to be self-supporting.
Senator Olson asked how this would impact areas with a shortage of
home inspectors.
Representative Rokeberg responded that use of a home inspector is
discretionary for the homebuyer, unless the lending institution
requires an inspection. He concluded this legislation would
therefore have minimal impact. He told of a mechanical inspector in
Kotzebue who has testified in other legislative committees that
because he only conducts approximately ten inspections annually,
the licensing costs could be prohibitive. Representative Rokeberg
disagreed that the proposed $125 annual license expense would cause
undue hardship, as inspections typically cost $350 in Anchorage and
are likely higher in rural locations. He qualified that the Alaska
Housing Finance Corporation (AHFC) requires housing inspections for
new construction and that the Corporation supports this
legislation.
Senator Olson noted the majority of homes located in rural areas
are included in a regional housing authority. He asked how this
legislation would affect the inspections of those houses.
Representative Rokeberg replied that a licensed inspector would be
required to conduct any inspections, unless exempted under this
legislation. He pointed out that entities advertising as home
inspectors would be required to be licensed. He admitted that some
"unique circumstances" exist in rural Alaska, and did not oppose
flexibility for these communities, provided that those conducting
inspections undertake proper training.
Senator Olson agreed and noted the bill does not currently exempt
regional housing authorities.
Amendment #1: This amendment adds regional housing authorities, as
defined under AS 18.55.996(b), to the list of exemptions related to
home inspectors in AS 08.18.156(a)(1), on page 16 of the committee
substitute.
Senator Olson moved for adoption.
Co-Chair Wilken objected for an explanation.
Representative Rokeberg explained this amendment would "raise the
regional housing authorities to the same level as a political
subdivision that had their own inspections." He gave an example of
the Municipality of Anchorage, which employs building inspectors
and is exempt from the provisions of this legislation. He noted the
Municipality has undertaken the "obligation to undertake whatever
inspections they so desire," as would regional housing authorities,
if this amendment is adopted. He clarified that a privately
operating home inspector would not be exempt from the provisions of
this legislation. He did not object to the adoption of this
amendment.
Co-Chair Wilken removed his objection and the amendment was ADOPTED
without objection.
Amendment #2: This amendment deletes "Conference of Building
Officials" and inserts "Code Council" in the six places this
language appears in the committee substitute.
Senator B. Stevens moved for adoption.
Co-Chair Wilken objected for an explanation.
Senator B. Stevens deferred to the bill sponsor.
Representative Rokeberg reiterated this is a "conforming" amendment
to reflect the name change of the International Code Council.
Co-Chair Wilken removed his objection and the amendment was ADOPTED
without objection.
DAVID OWENS, Owens Inspection Services, testified via
teleconference from Mat-Su that he primarily conducts "code
inspections" on new homes and commercial facilities. He noted he
occasionally conducts inspections on existing homes and he spoke to
the "vast" differences between a new code home inspector and a home
inspector as described in this legislation. He pointed out that
errors and omission insurance is only available to home inspectors
of existing or already built homes. He stressed this insurance is
not available for new construction home inspectors.
Mr. Owens referenced a letter to the Legislature, dated March 7,
2003 that he submitted [copy on file], which proposes three
amendments to the version of the bill passed by the House of
Representatives, as follows.
1) Remove the language from title page 1, line 6 through 8,
that states "repealing a law that limits liability for damages
based on a duty to inspect a residential unit to damages
caused by gross negligence or intentional misconduct."
2) Remove the word "two" on page 10, line 6 and replace it
with the word "one".
3) Remove the language from Section 41, page 22 line 21 that
states "AS 18.56.300(C) is repealed."
Mr. Owens supported this legislation with the exception of the
three areas: repeals law pertaining to limit of liability
Mr. Owens indicated results of a survey of home inspectors.
Co-Chair Green interjected she had a summary of the report titled,
"HB 9, New Home Inspector Survey" [copy on file] and would
distribute it for Member's consideration.
AT EASE 9:20 AM / 9:22 AM
Co-Chair Wilken noted the information was distributed.
Co-Chair Green explained the summary was compiled from the 25
responses from home inspectors obtained by her staff.
Mr. Owens spoke to the information, surmising that this legislation
would regulate 79 of the 182 operating home inspectors in the
State. He characterized most of these inspectors as certified, hold
a business license, and carry liability insurance. He relayed that
none of the inspectors he contacted had been notified of the
proposed changes by AHFC or other government agency.
Mr. Owens asserted the primary question included in the survey is
whether inspectors could remain in business and survey found that
13 respondents indicated they could, seven indicated they could not
and six others were unsure. He stressed that if unable to purchase
errors and omission insurance, inspectors could no longer stay in
business.
Mr. Owens listed another survey question relating to the fairness
of holding private inspectors to a higher liability limit than
government inspectors. He reported that every respondent judged
this to be unfair. He furthered that the 79 inspectors who would be
impacted by this legislation were asked whether they felt
discriminated against under the provisions of this legislation and
that the 26 respondents answered in the affirmative.
BERNIE SCHUYLER, Arctic Sky Enterprises, International Conference
of Building Officials (ICBO) Certified Home Inspector, and
Certified Commercial ICBO Inspector, testified via teleconference
from Mat-Su about the inability to obtain errors and omissions
insurance for inspectors. He warned that he would be out of
business if this legislation were passed, since he would be unable
to risk losing his assets, which could occur if he was without
liability insurance. He added that the exemption of government
inspectors is unfair.
Senator Olson asked if the witness had another occupation.
Mr. Schuyler responded that inspections is his sole means of
support
Senator Olson asked the number of inspections the witness conducts
annually.
Mr. Schuyler estimated he performs approximately 200 inspections
each year.
BOB MILBY, Milby Construction, testified via teleconference from
Mat-Su that he is a registered general contractor and ICBO
Certified Inspector, and only performs inspections on new
construction. He expressed that inspections on new construction is
significantly different than on existing dwellings. He was
concerned about the liability issue this legislation would present
and predicted that AHFC could be required to employ home inspectors
and provide the necessary liability insurance itself. He understood
the need for consumer protection, but argued that the ICBO systems
are in place for new construction and provide adequate protection.
Mr. Owens spoke to Amendment #2, which clarifies the name of the
professional organization.
ROCKWELL SMITH, Mechanical Contractor, testified via teleconference
from Kenai about his concerns with the language relating to
liability, on page 10, line 6 of the committee substitute. He
shared that as a mechanical contractor, inspectors continually
inspect his work and that he is held liable for his mistakes
without any exemptions. He next addressed the proposed certificate
of registration for home inspectors that would be issued upon
passage of "the appropriate home inspection" examination, and
informed that the open book examination in question requires no
prerequisite education or experience. He questioned how an
inspector should be held to a lesser standard than a mechanical
contractor.
STEVE WISDOM, Owner, Wisdom and Associates, Inc., testified via
teleconference from Kenai to reference his written testimony [copy
on file]. He supported the regulation of home inspectors although
was concerned about the repeal of the "gross negligence" clause for
new inspections and the insurance requirements proposed in this
bill. He stated that for years his firm was only one in Alaska that
carried errors and omissions insurance for new code compliance;
however if this bill passes and all inspectors are required to
carry the insurance, his provider has informed him the company
would no longer offer the coverage. Instead, he learned that
insurance coverage similar to that carried by municipalities would
only be available, at a premium cost of $10,000.
Mr. Wisdom furthered that the language providing the inspector
would be liable for two years should be reduced to a one-year
period, arguing that contractors are only liable for one year. He
cautioned that in the event of failure, such as a leak caused by a
missing "nail plate" the inspector would be the only liable party.
Mr. Wisdom requested the Committee review the requirements to
become a "joint" inspector, noting the requirements to become a
code inspector are more stringent.
Representative Rokeberg commented on the public testimony. He
understood Mr. Smith's testimony to indicate the requirements for
inspectors should be higher.
Representative Rokeberg shared that he has been in contact with Mr.
Wisdom and heard the concerns regarding the limited immunity
provided for in Section 21 of the committee substitute. However,
Representative Rokeberg disagreed that the two categories of home
inspectors is troublesome, as both should "be under this umbrella
of consumer protection." He surmised that Mr. Wisdom misunderstood
the issue of the length of liability.
Representative Rokeberg qualified the argument regarding the
separate examination requirements for new home inspectors and
existing home inspectors "might have some merit", but suggested
regulatory authority could address the matter.
Representative Rokeberg informed that the AHFC "wants to enjoy
their limited immunity now; that's the issue here before us
really."
Representative Rokeberg was sensitive to the cost and availability
of errors and omission insurance issue given the increased premiums
imposed as a result of the events of September 11, 2001.
Co-Chair Wilken asked if this bill was heard in either the House of
Representatives, or Senate Judiciary committees.
Representative Rokeberg listed the House of Representatives
Judiciary Committee and the Senate Labor and Commerce Committee as
holding hearings on this bill.
Co-Chair Green commented the insurance issue troubled her. She also
asked for clarification of the different types of inspectors.
Representative Rokeberg responded that 79 of the 182 inspectors are
not employees of a government agency, such as the Municipality of
Anchorage. He stated that those who are employed by a government
are exempt from the provisions of this bill, although the others
"have no immunity under the theory of sovereign immunity." He added
that private inspectors have "some limited immunity for Alaska
Housing Finance loans only. That's a distinction that's not being
made in the testimony." He explained that new home inspections on
construction financed through a conventional lender in an area,
such as the Mat-Su, that is not under the jurisdiction of local
building codes have no limited immunity. He stated that
inspections performed on facilities financed by the AHFC "currently
enjoy limited immunity on gross negligence and intentional
misconduct. That's a very high standard. So it's almost de facto
immunity."
Representative Rokeberg agreed that at issue is the difficulty in
obtaining errors and omissions insurance and the feasibility of
inspectors passing the expense to their customers. He suggested
that many inspectors could operate without the insurance because
"they're good practitioners and they're doing their job." He
challenged that inspectors hired by a contractor to verify that
subcontractors have completed their jobs should not enjoy "some
artificial immunity" if the construction is financed by AHFC rather
than Wells Fargo, Countrywide Mortgage, or other conventional
lender.
Representative Rokeberg disputed that AHFC finance projects should
be afforded "some special legal privilege" and informed that AHFC
supports this legislation.
Representative Rokeberg emphasized, "this bill grants super
numerary exclusions for bringing a cause of action by limiting the
time in which a cause of action can be filed. So it's even greater
protection to an existing home." He furthered that cause of action
on the findings of the inspection would be limited to one year for
new construction and two years for existing homes. He also
indicated a limitation related to a report saying, "The report here
in it's validity and how it can be picked up and used by somebody
is limited to 180 days."
Representative Rokeberg opined that this legislation extends "some
pretty extraordinary legal protection here" to inspectors,
explaining the balance in "removing this limited immunity with the
additional grants of a statutory immunity from additional
lawsuits". He stated the testifiers were speaking to "a limited
immunity to the standards of gross negligence and intentional
misconduct."
Co-Chair Green remarked, "I hope the sponsor did not intend to
impugn the reputation of builders and inspectors in the Mat-Su
Valley the way he did." She requested additional time to review
this legislation.
Senator Bunde asked if municipal building inspectors inspect new
home construction located in a municipality.
Representative Rokeberg affirmed.
Senator Bunde then asked if inspections are optional for new home
construction located in an area not governed by municipal building
codes if AFHC is not the lender.
Representative Rokeberg again affirmed.
Senator Bunde asked if inspection of existing homes is optional at
the time of resale.
Representative Rokeberg answered yes.
Representative Rokeberg expressed it was not his intent, "to make
any disparaging comments at all in the Mat Valley. I was just using
it as an example." He apologized if he did so and added, "not that
they couldn't use a little help out there."
Co-Chair Wilken ordered the bill HELD on Committee.
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